For start-up and existing business owners there are two questions that one should ask themselves before borrowing money from friends and family or making loan to financial institutes.
- How much money do you need? If you do not know exactly how much money you need, then no-one is going to lend anything to you. And nor should they, because it means that you have not thought through your business plan properly.
- What do you need the money for? Rough estimates do not go down well when applying for finance. You need to be specific as to what you are going to buy, when you are going to buy it, what you are going to use it for, and how much money you are going to create through your purchase. Also, if you know exactly what you need the money for, you can think of ways of managing without borrowing. For example, if you need money for a particular machine, do you necessarily have to buy your own, or could you share the cost with a partner (or even a competitor)? If you need money to purchase extra stock, will your suppliers be able to help you out in the short term?
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